EUR/USD: In Breakout Mode
Al Brooks | Sep 16, 2020 10:24AM ET
The EUR/USD forex market on the daily chart has been working higher for 6 days from a double bottom bull flag. It has been stuck in a tight trading range for 7 weeks. This is at the resistance of the September 2018 high.
While the 4 month rally was strong, there is a wedge buy climax on the weekly chart. The bulls are hoping to work off the climactic buying by going sideways rather than down. They expect another leg up to the February 2018 high at around 1.25 to begin soon.
The bears, however, know that a wedge top to resistance typically leads to enough profit taking to create a couple legs down. They expect a break below the 7 week range and then a measured move down to below the breakout point of the July rally. That is the June 10 high of 1.1422.
h2 A trading range is a neutral market/h2When the market is in a trading range, it is neutral. This is especially true when the range lasts 20 or more bars and is tight, like this one.
This is a Breakout Mode situation. Traders know that there is a 50% chance of a successful bull breakout or a bear breakout.
Today’s 11 am PST FOMC announcement is another potential catalyst. However, there have been other catalysts over the past couple months, yet the trading range has continued. Traders will keep betting on reversals until there is a clear breakout up or down.
h2 Overnight EUR/USD Forex trading/h2The 5 minute chart of the EUR/USD Forex market overnight sold off a little, rallied, and now pulled back. While the overnight session has been in a weak bull trend, the range is small. Also, the EUR/USD has been sideways in a tight range for 4 days. It has been in a 25 pip range for 5 hours. Day traders are mostly looking for scalps.
Since all financial markets tend to enter trading ranges ahead of FOMC announcements, day traders expect the EUR/USD to stay quiet until today’s report. At that time, there is often a sharp move up or down.
But with the EUR/USD in a very tight range for 4 days and in a tight range for 7 weeks, traders are not expecting a big trend today after the announcement. But if there is a series of 2 or 3 big trend bars up or down, they will swing trade. Until then, they will scalp.
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